§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ Mr. Eric Fletcher (Islington, East)
I am a little troubled about this Clause. As I understand, its whole object is to make applicable to the Excess Profits Levy the provisions as to the avoidance of liability to tax which are enshrined in Section 32 of the Finance Act, 1951. I hope that the Financial Secretary will correct me if I am wrong. Section 32 contains provisions relating to transactions designed to avoid liability to Purchase Tax.
When the Committee considered Section 32 of the Finance Act, 1951, last year we had a long debate on that Section. I supported it, and I think I am right in saying it was supported by all my hon. Friends. Had it not been for certain observations from hon. Members opposite I should have thought it right for the Committee to have agreed this Clause at this stage, but in view of what was said about Section 32 last year, which we are now being asked to extend from the Profits Tax to the Excess Profits Levy, I wish to ask certain questions of the Financial Secretary to the Treasury. It is no use the Financial Secretary to the Treasury nodding his head. I want to ask him one or two questions.
§ The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)
I am sorry. I was trying to indicate to the hon. Gentleman that my hon. and learned Friend the Solicitor-General was dealing with the Amendment.
§ Mr. Fletcher
I wish to ask the hon. and learned Gentleman some questions as well. Section 32 was one of the most contentious Clauses in the whole of the hotly contested Finance Act last year. Numerous speeches were made on it by the present Financial Secretary to the Treasury, the present Solicitor-General, the Minister of Works and various other Members of Her Majesty's present Government. The Committee is entitled to know what their real views are.
The Committee ought to be reminded of the words used by right hon. and hon. and learned Gentlemen opposite about Section 32. The Section was designed to prevent tax evasion in relation to Profits Tax. It is now proposed to extend it to tax evasion in relation to Excess Profits Levy. At that time the Financial Secretary said:That is constitutionally a monstrous thing to do.Does he still think Section 32 a monstrous thing? Is it a monstrous thing in relation to Profits Tax but not a monstrous thing in relation to the Excess Profits Levy?
The Financial Secretary said that nobody wanted to assist tax evasion, and went on:… it does not follow from that proposition that every action which the Government may see fit to take in the name of preventing tax evasion is right or sensible. Once that attitude is adopted one is taking up precisely the same attitude as totalitarian States, that anything whether enacted in legislation or not, which is inconvenient to those who control the State is, for that reason, an offence against the law. That is a doctrine of totalitarianism, whether of the Fascist Right or the Communist Left." —[OFFICIAL REPORT, 12th June, 1951; Vol. 488, c. 1924.]Are we to assume that the Financial Secretary is now a Fascist or a Communist?
§ Sir Herbert Williams (Croydon, East)
Is the hon. Gentleman talking about the illegality of tax evasion or of something which is different—tax avoidance?
§ Mr. Fletcher
I am trying to understand the Clause which the Committee is now asked to pass and it relates to tax evasion. A year ago the Financial Secretary and his hon. Friends said that the Section was a symptom of totalitarianism. Are we to assume that the Financial Secretary has now become a Fascist or a Communist or was he merely speaking a year ago from the virtuosity of his own verbosity and using language which nobody was intended to take seriously?
But what he said was repeated in almost identical words by the present Solicitor-General. It is no use the Solicitor-General shaking his head, for I have here what he said according to columns 1259–60 of the OFFICIAL REPORT at that time. The Solicitor-General then followed the Financial Secretary to the Treasury, and his complaint seemed to be that the Financial Secretary had not gone far enough. He said that the situation was even worse than the Financial Secretary had said it was.
What does the Solicitor-General say now? Is this totalitarian legislation? Are we now to take it that the "high falutin'" speeches of hon. and right hon. Gentlemen opposite had no meaning at all, but were made with complete insincerity and were merely a low attempt to embarrass the Government of the day? How dare they come along within 12 months and ask the Committee to repeat in identical language the terms of a Section which they condemned so violently. Is this serious government? They all stand condemned out of their own mouths by the arguments which they addressed to the Committee a year ago.
There was also the hon. and learned Member for York (Mr. Hylton-Foster). He has not dared face the Committee this afternoon. There was also the Parliamentary Secretary to the Board of Trade, who was here at Question time but has now left the Committee. He and others adopted equally scurrilous language about Section 32.
I hesitate to believe that, unless some of their hon. Friends had drawn attention to this matter, the Commitee would have been invited without a word of explanation to re-adopt in its application to the Excess Profits Levy the Section against tax evasion which was condemned so wholeheartedly and unanimously by hon. 1172 Gentlemen opposite. Several Divisions took place in relation to it. What has happened to induce the Financial Secretary and the Minister of State for Economic Affairs to change their minds? I hope that we shall have some explanation of this extraordinary conduct.
§ The Solicitor-General (Sir Reginald Manningham-Buller)
The hon. Gentleman asked what the Solicitor-General would say now. I shall do my best to answer all his charges, but he has not really been very frank with the Committee. He invited the Committee to assume that Section 32 of the Finance Act, 1951, was similar in form to the Clause in the present Bill when it was introduced by the late Government. He said there were a number of Divisions on the section. There were, and he must be aware that as a result of the efforts made by my hon. Friends and myself many Amendments were made to the section during its passage through the House.
I would remind him—he has seen it, but he did not remind the Committee about it—that throughout our discussions on that section we made it absolutely clear that we were no more prepared to countenance tax avoidance than anyone else, but that what we sought to do was to ensure that the section could not operate to cause injustices. I think our efforts improved the section, and I believe that that was recognised at the time. Just as we were then not prepared to countenance tax avoidance, so now we are not prepared to countenance tax avoidance. It is for that reason that we seek to apply Section 32, which is different from the Clause as originally introduced, to the Excess Profits Levy.
§ Sir Patrick Spens (Kensington, South)
I want to draw the attention of my hon. and learned Friend to the last part of subsection (1). While I entirely agree that the Clause ought to be applied in the way in which it is proposed to apply it, I do not think the last part of subsection (1) can be right. The first part indicates that the same provision of Section 32 shall apply to attempts to avoid Excess Profits Levy or the Profits Tax and the Excess Profits Levy in the same way as it applied to the avoidance of Profits Tax under the 1951 Act.
1173 Then, it goes on to make a provision which I have never seen in a Bill, and which I think is utterly wrong in principle and most dangerous. It goes on to refer to subsection (3) of Section 32, and states:the provisions of the Bill for this Act and any amendments made therein before the passing threof, shall be deemed to have been in force as from the introduction of the said Bill into the Commons House of Parliament or the making of the said amendments, as the case may be.4.30 p.m.
The effect of that is that, if an avoidance transaction was started the moment when this Bill was printed, if it was carried out before the Bill came into Committee of this House, the court would have to consider, not what are the effects of this Bill when it becomes an Act of Parliament, but what were the effects of the Bill as originally introduced. If another transaction is effected after an Amendment has been moved, the court would have to consider when the Amendment was moved and when it became effective, as well as whether the transaction was carried out before or after it actually became effective.
Moreover, this Bill has still to go through Report stage, and, if further Amendments are made, inquiries will have to be made as to when those Amendments became effective. This means that, if this Clause goes through in this form, the procedure in the House may have to be inquired into, and it may be necessary in the court to find out what were the original terms of the Bill, what Amendments were made, when they were made, when those Amendments became effective, and at what stage.
I have never seen a Clause like this before, and I cannot believe that it can possibly be right in principle. I think it is a most dangerous innovation, and I am greatly surprised to find that it comes from this Government. Of course, the fact that it has been introduced now may be because there may have been instances, when the Bill was printed, of people trying to enter into transactions for avoiding tax, but I think those transactions have to be highly complicated transactions. They will not go through quickly, and, surely, the right form ought to be the ordinary form that this Clause will become effective as from the time when the Bill becomes an Act of Parliament.
1174 We cannot have inquiries being made into what form Bills are introduced in this House and Amendments made to them, and whether transactions take place before or after those Amendments are made. It is an invitation to conflict between the courts and Parliament, and I want to make this very strong protest, in the hope that, before the Report stage, these words will be excluded. If not, I propose to put down an Amendment to remove them, and I hope to have the support of the Committee in doing so.
§ Mr. Douglas Houghton (Sowerby)
Notwithstanding the legal difficulties to which the hon. and learned Member for Kensington, South (Sir P. Spens) has just drawn attention, I think the Committee will agree that there is justification behind the words in subsection (1), which stand as a warning against those who may wish to act quickly against the intentions of the law. After all, they had Section 32 of the Finance Act, 1951, to guide them—
§ Mr. Raymond Gower (Barry)
Is the hon. Gentleman contending that something that has not been passed is the law?
§ Mr. Houghton
No, but it has more moral force behind it when introduced by H.M. Government as a means of taxing the fortuitous profits of re-armament. We have been told time and again from the benches opposite that the whole of the Excess Protfis Levy is a moral symbol rather than a means of collecting revenue. It is something which the people of Britain wish to see as a corrective to what might otherwise be excessive profits out of re-armament, which would be an offence against the public conscience.
I fully understand the legal difficulties to which the hon. and learned Gentleman has drawn attention, but, when I was interrupted, I was saying that, although there is reference to the provisions of the Bill and to any Amendments thereto, the broad principles which lie behind subsection (1) of Clause 59 are already written into Section 32 of the Finance Act, 1951, so that no one need be under any real misapprehension as to the sort of preventive measures which this Bill will ultimately contain.
1175 The main point raised by my hon. Friend the Member for Islington, East (Mr. E. Fletcher), to which the Solicitor-General has replied, is one on which we are naturally sensitive on this side of the Committee. Had the hon. and learned Gentleman waited a moment or two, I think I could have given him a better defence than the one he used. He pleads that the Clause, as it found its way into the Bill last year—that is Clause 28, which became Section 32—was amended as a result of the criticism of hon. and right hon. Gentlemen opposite, and that it was a different Section from the original Clause as introduced. That, however, did not prevent hon. and right hon. Gentlemen opposite dividing against the Clause, so that, evidently, it did not satisfy them, even when some Amendments had been made to meet their point of view.
The hon. and learned Gentleman will remember that he and I had a little brush on this matter quite early in the morning, when he accused me, first of all, of not being present. 'When I insisted that I was, he said that I was otherwise engaged; when I insisted that I was not otherwise engaged, he then accused me of being asleep. I resented all these unfounded criticisms, because what I was pointing out to him was that, despite all the fuss and excitement and hotted-up indignation on the part of the then Opposition, the principle of the Clause which my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) was introducing into the Bill last year was, in fact, an almost exact copy of what had already been written into the Finance Act, 1941, and the Finance Act, 1944, with regard to Profits Tax.
Last year, the hon. and learned Gentleman will remember, I tried to impress upon him and his hon. Friends that what a Coalition Government had thought to be a necessary deterrent against tax avoidance, at the time of the introduction of the Excess Profits Tax in 1941 and the further legislation in 1944, could not really be objected to when my right hon. Friend was proposing to introduce similar measures as a corrective against the avoidance of Excess Profits Tax.
The hon. and learned Gentleman will appreciate that the higher the level of taxation upon company profits, the 1176 greater the temptation to indulge in various devices for tax avoidance, and the hon. and learned Gentleman surely has the defence that what was good for Excess Profits Tax at the time of the Coalition Government in 1941 and 1944 is good enough for the Excess Profits Levy in 1952.
The hon. and learned Gentleman could have distinguished between the Excess Profits Levy in this connection and the Profits Tax. However, I make him a present of that if it is any good to him. But, bearing in mind the intemperate language used by hon. and right hon. Members opposite at the time of the discussion on this Clause in last year's Bill, it really makes one wonder how they have found it possible, not only to reaffirm that same Clause in this Bill, but to extend it to the Excess Profits Levy.
We on this side of the Committee are anxious to bring the penitent to book. What did the right hon. Member for Chippenham (Mr. Eccles), the present Minister of Works, say on 12th June, 1951? He said:The Inland Revenue pursue with a ferocious inhumanity the single black sheep who stands out among a hundred honest taxpayers. All sense of proportion is lost and, in their blinkered zeal to harry, hobble and chastise the solitary sinner, they entirely overlook the effect of their persecution upon the hundred good citizens; and, I may add, on their own respect for the convenience and liberties of their fellows.That is scarcely in keeping with the genial personality, as we have now come to regard the right hon. Gentleman, when dealing with such matters as the Festival Gardens and his desire that the people of Britain shall still continue to enjoy themselves. In the same debate, the Financial Secretary said:To provide that the whole thing can be shovelled over"—notice the language, "shovelled over"—to the hands of the Commissioners who, quite unfettered, are to decide whether one commercial transaction offends the law and another does not is an astonishing proposition for this Committee to be debating even at 4.20 in the morning."—[OFFICIAL REPORT, 12th June, 1951; Vol. 488, c. 1921–24.]I do not know that the hour of the day necessarily connotes the degree of astonishment with which we may be debating various matters in this Committee, but I think we would like to have something more wholehearted from hon. and right hon. Members opposite before 1177 we part with this Clause. Let them say quite honestly and fairly that what they were doing last year was to harry the Government and to indulge in a lot of synthetic indignation about this, and that they now truly believe that it was a necessary part of the equipment of the Inland Revenue for checking tax avoidance. Let them be honest with the Committee and say that they regret what they did last year, that they ask for the forgiveness of hon. Members on this side of the Committee, and that they promise not to indulge in such tactics again.
§ The Solicitor-General
I thought that at one time the hon. Member for Sowerby (Mr. Houghton) was offering to enter into a Coalition, but his concluding remarks were of a rather different character. I see no reason to add anything to what I said to my hon. and learned Friend on that particular subject. The Clause in that Bill was a bad Clause, but it was considerably improved, and, indeed, could have been improved still further. However, I rise to deal with the point raised by my hon. and learned Friend. I may say that I was not in the least surprised to find one of my hon. Friends making this point with regard to retrospective legislation, and it is certainly right that there should be inquiry before we make any legislation retrospective.
There is a real problem here. A considerable interval of time is bound to elapse between the publication of this Bill and its becoming law. That frequently happens. With regard to the Profits Tax, for instance, the avoidance provisions in last year's Bill were backdated to the date of the Budget. The retrospective effect here is very limited. It only applies to Section 32 (3) of the Finance Act, 1951, and the content of this Bill when it becomes an Act will only be looked at for the purpose of interpreting that subsection.
Section 32 (3) deals with the ascertainment of the main benefit of the transaction, whether it was to secure tax avoidance or not, and I am sure the Committee will agree that unless we have some retrospective provision in this Bill dealing with tax avoidance we shall be leaving a rather wide gap between the introduction of the Bill, when people can see the scheme, and its passage into law, 1178 a gap through which a good deal of tax avoidance could take place.
The Committee will remember the whisky transactions which took place during the war, and, therefore, it is really necessary in our view that there should be a retrospective effect of this tax avoidance Clause which, as drafted, is limited to subsection (3). I think that must be so, although I must confess I am not entirely happy about the particular wording of the retrospective provision and especially of the Amendments made in the Bill. It seems to me one thing to say that the Bill as printed shall apply, and another to say that the Act itself shall have a retrospective effect.
Without committing myself, because I must be careful not to do that, I can assure the right hon. Gentleman that we will consider the drafting of this between now and the Report stage to see whether we can improve it, but it is our view that we must retain the retrospective effect back to the date of the introduction of the Bill.
§ Mr. J. Grimond (Orkney and Shetland)
Apart from the undesirability of retrospective legislation, does the Solicitor-General accept his hon. and learned Friend's interpretation of the wording as it stands? I understood that his hon. and learned Friend was contending that the effect of this Clause would be that the date of Amendments would have to be looked at. Is it not the case that all Amendments are backdated to the date of the Bill?
§ Sir P. Spens
The subsection refers to a transaction which takes place at a certain time according to the provisions of the law at that time in force. Of course, if this provision is made retrospective merely to the date when the Bill was first published, that would be simple enough, because the law would cover the whole time. But with the introduction of this question of Amendments, we find that the Bill as printed is law until an Amendment is made and until that Amendment is re-amended so that if the transaction takes place between the printing of the Bill and the making of an Amendment one has to look at the Bill, but if it takes place after the Amendment one has to look at the Amendment, and, likewise, if it takes place after the re-amendment one has to look at that.
§ The Solicitor-General
I think that my hon. and learned Friend is substantially correct if we bear in mind that the application of that provision regarding Amendments relates only to Section 32 (3) and nothing else. I might save a lot of time if I read the material part of subsection (3). It says:If it appears in the case of any transaction or transactions, being a transaction which involves, or transactions one or more of which involves—(a) the transfer or acquisition of shares in or debentures of a company;"—or other things of that sort—that, having regard to the provisions of the law relating to the profits tax other than this section which were in force at the time when the transaction or transactions was or were effected, the main benefit which might have been expected to accrue from the transaction or transactions in the three years immediately following the completion thereof was the avoidance or reduction of liability to the tax, the avoidance or reduction of that liability to the profits tax shall be deemed for purposes of this section to have been the main purpose or one of the main purposes of the transaction or transactions.So, in determining the main purpose of the transaction under that Act one is looking through the provisions of the law at that time. This Clause gives a wider interpretation to the phrase "provisions of the law" by saying one can look at the Bill and any Amendments made to it before the Bill becomes an Act. I think the position with regard to Amendments and the date at which Amendments are made can create difficulties and it is for that reason that, while I want to make it clear that the Bill in this connection must have a retrospective effect, I say that I will certainly have another look at the wording.
§ Sir Frank Soskice (Sheffield, Neepsend)
I do not want to make a long contribution to the debate. I could have understood the Solicitor-General and the Financial Secretary saying frankly to the Committee that they have revised the views they expressed last year when Clause 28, as it then was, was introduced to the Committee as part of what is now the Finance Act, 1951. If they had said that I am quite sure the Committee would have been perfectly sympathetic with them.
It is perfectly proper on further consideration that we should change our 1180 minds, but what I think any side of the Committee would not like is that the Solicitor-General should try to pretend that he and his hon. Friend the Financial Secretary have not changed their minds and should try to ride off on the excuse that they introduced Amendments to the Clause which we introduced last year which removed its objectionable features from their point of view.
That is very far from the case. They certainly introduced Amendments which we were ready to accept, and we were, indeed, grateful to them for the advice that they gave; but what they did not do was to persuade us to change those features in the Bill which they themselves most violently attacked. Yet this year they adopt those very features as part of their own Bill. The Financial Secretary is looking very distant because he may know what I am going to quote from his own utterances, and I hope he will accord me the kindness of listening to what I say.
He said with a great deal of warmth and conviction, which I am quite sure was at that time perfectly sincere, that we acted very wrongly, most improperly indeed, almost as totalitarians in a totalitarian State might act in investing in the Commissioners the power to determine in respect of which transactions a contribution should be made. I have in front of me the hon. Gentleman's speech. I do not want to read it at length, but I am sure he will recognise that I am giving the purport of what he said.
He said that it was disgraceful, that it was monstrous that we should not invest these powers in a Minister of the Crown, but should give those powers to a body of officials outside Parliament who were to be given power, in substance, to amend the Revenue legislation passed by the House of Commons. Then he went on to say:Once that attitude is adopted one is taking up precisely the same attitude as totalitarian States, that anything whether enacted in legislation or not, which is inconvenient to those who control the State is, for that reason, an offence against the law."—OFFICIAL REPORT, 12th June, 1951, Vol. 488, c. 1924.]That was the burden of his complaint.
The Solicitor-General spoke next. He spoke in equally sombre tones. He did not attempt for a second to dissociate himself from what the present Financial Secretary then said or say that what the Financial Secretary said was rather extravagant and 1181 absurd. On the contrary, by his speech he wholly associated himself with the Financial Secretary. He went further and said that he had an objection which was something much deeper than hitting at tax dodgers.
He argued that the Clause seemed to hit at transactions which were honest and dishonest. He was clearly implying that he, as a legal Member of the House of Commons, as is also his hon. Friend the Financial Secretary, was deeply moved at the outrage that was being done to principles that underlay our whole financial structure. It was upon that that they spoke, and it was that view that they tried hard to persuade the Committee to adopt.
That was when they were in Opposition and when they were criticising the then Government for doing precisely what they are doing today. Then, today, the Solicitor-General, reading from a brief, or trying to make the best of a difficult case, says that this Clause is all right because the party opposite had removed the objectionable features. The most objectionable feature that the present Solicitor-General and the Financial Secretary both so much disliked last year was the vesting of these powers in the Commissioners. But that is in the Clause as it now stands.
The original Clause in the 1951 Bill, which subsequently became Section 32 of the Act when it became an enactment, is taken lock stock and barrel with the powers vested in the Commissioners and put in this Bill which the Government now place before the Committee. I do not want to accuse either the hon. and learned Gentleman or his hon. Friend of disingenuous conduct. Their standards are far too high for that. One of them is, after all, a Balliol man and that is a very high commendation; and I certainly have the highest regard for the sterling qualities of character of both. But here they have bemused and deceived themselves into a wholly inconsistent attitude which certainly does not do credit to their intelligence.
They have turned the tables completely round and accepted what they condemned outright last year with all those very features in it which they condemned. I think they should come before the Committee in a white sheet. They ought to have said quite frankly to their col- 1182 leagues, who certainly would have accepted it from them, that they felt, on reflection, that they had been talking nonsense last year.
They still have a perfectly good opportunity for making amends. We on this side of the Committee have put down a Clause this year dealing with entertainment expenses. We take the view—as demonstrated in that Clause which I certainly cannot discuss now, as you would rule me out of order, Sir Charles —that it is perfectly right and proper that those whose duty it is to collect tax should be furnished with ample powers to possess themselves with the necessary information to enable them to assess it. That is just what hon. Gentlemen opposite are giving to the Commissioners in the Clause now under discussion.
I hope they will maintain this time a consistent attitude when we come to discuss the later Clause to which I have referred. I think they are perfectly right in putting this Clause in this Bill, though I do not say that they are right in every word of it. The hon. and learned Member for Kensington, South (Sir P. Spens), has made criticisms, and the Solicitor-General has said that he will consider the matter further. I do not want to take sides about that. I am sure that the consideration the Solicitor-General will give will yield valuable results in the future. It has hitherto, and we wish him well.
The Government are right in taking these powers, but they are wrong—and they will always be perfectly wrong—when they indulge, for purely party purposes, in criticism in which they do not believe of Measures which they know are absolutely necessary. This is such a Measure. This particular Clause is designed to prevent people being able to avoid paying their just share of the taxes. We can differ as to the rate at which taxes should be imposed but let us have no mealy-mouthed talking about this question. If it is necessary that the taxes should be exacted from people who are doing their best to get out of paying them, the necessary powers should be given to those whose duty it is to assess and exact them.
I agree with this Clause, although it may be that certain changes will be made after further consideration; but I do pro- 1183 test at this half-sincere way of criticising a Measure simply because it emanates from the other side of the Committee. I support the Government in this Clause, but I do not support the utterances which we have had from the two speakers who represent them today, who do not seem to have done credit either to those with whom they are associated or to themselves.
§ Mr. Ian Horobin (Oldham, East)
I shall not detain the Committee for more than a moment or two; but this is obviously a sham battle between the two Front Benches. The Solicitor-General may have made a debating point in defence of himself when he said that he had succeeded in amending the Clause as originally introduced last year, but everybody knows that that is not the real defence. Both Front Benches know in their heart of hearts—and that is why they both introduced these foolish industrial provisions when in office—that the present grinding standard of taxation is impossible to enforce without some such undesirable provisions in the law.
No business man in his office, by making things and providing services, can earn half as much money in a month as he can earn in 24 hours with a clever accountant. We are talking not about tax evasion, but perfectly legal tax avoidance. The real moral of all this bogus interchange is that the sooner taxation is reduced the better it will be not only for British industry's profits but for British industry's probity. That is the long and short of it, and everybody knows it. These dialectical interchanges do no service whatever to British industry.
§ The Solicitor-General
We have had an interesting and entertaining discussion on this Clause. I should like to make it quite clear that I should be the last person to suggest that the right hon. and learned Gentleman opposite has engaged, in any sense, in a bogus discussion. We have had a long and, I think, useful discussion, particularly in regard to the observations of my hon. and learned Friend the Member for Kensington, South (Sir P. Spens) which drew attention to what I regard as a fairly important point. I suggest that we could now continue, because we have a lot of 1184 work to do on these new Clauses and I think we have covered this Clause rather fully.
Question put, and agreed to.
Clause ordered to stand part of the Bill.